Executive Life Insurance Company (ELIC) was once the largest life insurance company in California. Its financial problems and subsequent insolvency in April 1991 shocked its policyholders and the financial world.
At the time, First Executive was the biggest insurer ever to fail, which resulted primarily from money-losing investments in
junk bonds
In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit eve ...
. First Executive through Fred Carr had a strong association with
Mike Milken
Michael Robert Milken (born July 4, 1946) is an American financier. He is known for his role in the development of the market for high-yield bonds ("junk bonds"), and his conviction and sentence following a guilty plea on felony charges for vio ...
and the brokerage firm
Drexel Burnham Lambert
Drexel Burnham Lambert was an American multinational investment bank that was forced into bankruptcy in 1990 due to its involvement in illegal activities in the junk bond market, driven by senior executive Michael Milken. At its height, it was ...
, whereby at the end of 1990 the company-owned
high-yield debt
In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit event ...
, much of it issued through Drexel, with a carrying value of $9 billion. According to
Robert Sobel
Robert Sobel (February 19, 1931 – June 2, 1999) was an American professor of history at Hofstra University and a well-known and prolific writer of business histories.
Biography
Sobel was born in the Bronx, in New York City, New York. He c ...
, First Executive was involved in 90% of Drexel's underwritings, which accounted for about $40 billion in bonds from 1982 to 1987.
After the State of California took over Executive Life, it sold the company's junk-bond portfolio to Altus Finance, a unit of
Crédit Lyonnais
The Crédit Lyonnais (, "Lyon Credit ompany) was a major French bank, created in 1863 and absorbed by former rival Crédit Agricole in 2003. Its head office was initially in Lyon but moved to Paris in 1882. In the early years of the 20th cent ...
, in November 1991 for $3.25 billion. Because banks were prohibited under the
Glass–Steagall Act from owning insurance companies, Crédit Lyonnais organized an investor group to buy the insurance company operations, with the new company named Aurora National Life Assurance Co. Majority control of Aurora National was sold to
Groupe Artémis
Groupe Artémis S.A. is a holding company with a portfolio of investments in fashion, wine, luxury, art, tourism, publishing, sports, food, and technology. Headquartered in Paris, France, Groupe Artémis was founded by François Pinault in 1992 ...
in 1994. In July 1998, an anonymous French
whistle-blower
A whistleblower (also written as whistle-blower or whistle blower) is a person, often an employee, who reveals information about activity within a private or public organization that is deemed illegal, immoral, illicit, unsafe or fraudulent. Whi ...
told the California Insurance Department that Crédit Lyonnais was the real buyer of the insurance company and controlled it through secret agreements. In early 1999, the California Insurance Department sued the bank and other parties, alleging fraud and seeking $2 billion in restitution.
In 2003,
Crédit Lyonnais
The Crédit Lyonnais (, "Lyon Credit ompany) was a major French bank, created in 1863 and absorbed by former rival Crédit Agricole in 2003. Its head office was initially in Lyon but moved to Paris in 1882. In the early years of the 20th cent ...
and others agreed to pay $771 million in settlements resulting from false statements to bank regulators in connection with the acquisition of junk bonds and the insurance business of the failed Executive Life Insurance Company of California.
In 2001,
Swiss Re
Swiss Reinsurance Company Ltd,
Swiss Re. Retrieved on 18 January 2011. "Swiss Reinsurance Company Ltd ("Swiss Re") ...
took control of the Aurora National Life policies; Swiss Re fully acquired Aurora National Life in 2012. In 2014, Aurora National Life was sold to
Reinsurance Group of America.
A subsidiary, Executive Life Insurance Company of New York (ELNY), was seized by the state of New York, who sold the majority of the business to
MetLife
MetLife, Inc. is the Holding company, holding corporation for the Metropolitan Life Insurance Company (MLIC), better known as MetLife, and its affiliates. MetLife is among the largest global providers of insurance, Annuity (US financial produc ...
, retaining the
structured settlement
A structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, ra ...
book of business. Due to mismanagement, ELNY was ordered to liquidate.
Guaranty Association Benefits Company took over the assets of ELNY in 2013.
See also
*
Guaranty association
References
External links
Insurance JournalGuaranty Association Benefits Company
Life insurance companies of the United States
Defunct insurance companies
Defunct companies based in Greater Los Angeles
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